How billions failed to block mining reforms

By Richard Mgamba

22nd April 2012

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President Jakaya Kikwete

The 2005 general election was marred by, among other things, a decade-long public outcry about the decision by the President Mkapa regime to give freely the country’s vast mineral resources to foreign investors.

The election of President Jakaya Kikwete, who had during the campaigns promised to overhaul the mining contracts, was seen by many as the breakthrough the country had been awaiting for a decade with baited breath to regain its deserved share in the mining sector.

During his campaign, especially in minerals-rich areas, Kikwete promised that, once elected, one of his priorities would be to review all contracts in the mining sector in order to bring what he described as a ‘win-win situation’. After his election, President Kikwete appointed Lawrence Kego Masha as the deputy minister for Minerals and Energy and tasked him, among other things, with a review of all the contracts and advising the government on how to handle the mining sector.

Though some analysts were not happy with Masha’s appointment, citing conflict of interest because his law firm was representing some of the foreign mining companies, the president decided to give him the benefit of the doubt.

Later on Masha issued a credible report on the fiscal regime, which was in later years also used by the Judge Mark Bomani-led Committee as its benchmark in reviewing all the mining contracts between 2007 and 2008. Despite his credible report which detailed how this country was being milked by foreign mining firms, Masha was later on transferred to the Home Affairs ministry as full minister.

Prime Minister Edward Lowassa, also acting on the instructions of his boss, hired an economist from the Bank of Tanzania, Msafiri Nampesya, to help him with the economic-know-how of the mining sector. But his move was later tainted by the Buzwagi controversial contract which was signed in London early in 2007.

However, as President Kikwete’s regime continued with its efforts to overhaul the mining sector powerful forces infiltrated his cabinet using some of the prominent CCM bigwigs such as Rostam Aziz and others, to block or neutralize the move. Some people were worried that any radical reforms in the sector would tarnish the image of the country before international investors.

Tanzania, they argued, was still a young country that needed more foreign investors than the latter needed it and therefore those advocating radical reforms in the mining sector were either seen as anti-business or urged to tread carefully.

The beginning of 2006 was marked by uncertainty within the mining sector whereby some of the biggest key players were not happy at all by the government’s move to overhaul the Mining Act of 1998.

To fight the move, some powerful forces were hired to brainwash some lawmakers as well as media executives using the very same techniques applied by the Britton Woods institutions in the 1990s. Media trips were organized for journalists to visit various mines who, on their return, some suddenly became the pimps of foreign companies at the expense of their country.

It was the same story with some lawmakers and government officials. The story was that Tanzania, as a country, couldn’t afford such huge investments and therefore it was a wise move to allow foreign companies to invest in the sector by granting them massive incentives.

However, with the growing pressure from activists and the media by the end of 2006 it was agreed within the government that since there was a move to overhaul the Mining Act of 1998, then no any mineral development agreement (MDA) would be granted. The idea was to ensure that any new licence for large-scale mining should be issued once the country has had a new good law in place, though later on the agreement was violated by the very same government.

Some big players within the mining sector, by using their agents, established that the state was planning to introduce a new law that would allow the government to own free carried share of up to 40 per cent in any mine without investing a single shilling.

African Barrick Gold knew that this was something the company wasn’t ready to accept, and therefore it launched a campaign to ensure that it secured an MDA for its Buzwagi gold mine as soon as possible before the new Act was introduced. Early in 2007, the nation was shocked to learn that Nazir Karamagi, then sitting minister for Energy and Minerals, had signed a contract with the Canadian investors, granting them a licence to construct a $400 million mine at Buzwagi, in Shinyanga region.

Tanzania has roughly 47m ounces of gold valued at $75 billion (as per the current price of $1600 per ounce) scattered about beneath its surface, mainly in the Lake Victoria gold belt. No one is quite sure how much of that is retrievable, but this was enough to make the country the third largest gold producer in Africa after South Africa and Ghana, and the second largest non-oil recipient of foreign direct investment ($4 billion from mining over the last decade) on the continent.

Karamagi’s move was against the earlier agreement of suspending issuance of any new large-scale mining licence pending the introduction of a new Act, which would enable the country to have what President Kikwete called a ‘win-win’ situation.

Not only that, but also the decision to sign the contract in London raised more questions, with some critics led by Kigoma North legislator Zitto Kabwe, calling for thorough investigation into the matter. Karamagi acted against the earlier agreement not to issue any MDA or licence for large-scale mining until the country had a proper new mining law.

In his actions, Karamagi was supported by his boss, the former premier, who was also in London during the signing of the contract, though there was no evidence to support the suggestion that he attended the signing ceremony.

However, the former premier vehemently denied any wrongdoing, saying the minister for Energy and Minerals was given powers by the 1998 Act to sign the MDA. This means that Karamagi used the very same bad law to grant another bad contract at the expense of this country, and he was let to walk out of the government freely.

This move was the basis for Kabwe’s outcry in Parliament, before CCM legislators ganged up against him. Whether the legislators knew that they were being used or not is debatable, but they finally used their numbers in the House to banish Kabwe from parliamentary proceedings.

To CCM legislators, the interests of their party were more important than the interests of their country. However, they forgot one thing: that by uniting their forces to defend Karamagi, whose integrity was questionable, they were unwittingly making Kabwe a hero while at the same time they were digging their own political grave.

Immediately after Kabwe was ousted, Lowassa planned a counter attack against any strong public reactions, and in one incident a TV talk show to which the Kigoma North MP had been invited was delayed after the premier demanded that another CCM legislator also be invited.

Adam Malima, the current deputy minister for Energy and Minerals, was tasked to counter any attacks from Kabwe during the TV talk show. On the other hand, Samuel Sitta was also on TBC1 defending the National Assembly’s move to expel Kabwe from its proceedings. To put things into perspective, up to this stage the powerful forces had won, though they didn’t know that President Kikwete’s views about Kabwe were very positive.

In October, 2007 during the CCM election in Dodoma, President Kikwete dropped a ‘bombshell’ when he finally declared that he would form a presidential committee that would review all mining contracts as well as the entire sector.

This wasn’t received very well within his party, especially to those who acted as agents of globalization. It was a thorn into their flesh. However, the real bombshell came a few days later when the president named Zitto Kabwe one of the members of the Presidential Mining Review Committee.

This was a stunning move to former premier Lowassa, Karamagi and other CCM legislators who had ganged up to oust Kabwe from Parliament. It was also another indication that Kikwete was still committed to bringing a new mining Act, despite the internal undercurrents of resistance, mainly by the ‘pimps’ of the plunderers of our resources.

But, it was also a signal that President Kikwete was acting as a lone ranger in his bid to overhaul the Mining Act of 1998. To some of us who have reported extensively about the mining sector and how the country was being plundered because of the dubious Act, Kikwete’s move was a resounding victory on our side.

It was a victory because, at the end of the day, we do not just write for the sake of informing the public but also to hold the government accountable so that it can take decisions. Between 1998 and 2007 I was seen by most large-scale miners as a thorn in the flesh because of my extensive reporting about the industry, which raised awareness to the general public on how Tanzania was being plundered.

The media industry was divided into two groups: the watchdog and the lapdog. We were in the group of the watchdog, while some of our colleagues decided to be in the other group, doing the job of countering every story that we published.

But we managed to overcome them and their paymasters because we were standing for the truth, driven mainly by the public interest. That’s why the day President Kikwete stood before his party and told the nation what we had been awaiting for a decade, our editorial team, led by Madam Sakina Datoo, was not only excited but also inspired.

After years of being dubbed anti-government because of our investigative reporting of the mining sector and other key sectors, the moment of truth had arrived because we knew that any serious committee would reveal or confirm all the things we had been reporting for years.

Within a few weeks, the Presidential Mining Review Committee was named and Judge Bomani was tasked to chair it. The 11-member committee was tasked to review all existing mining contracts and to gauge their efficacy in generating government revenue.

Finally, after a broad review of all mining contracts, visiting all gold mines, interviewing various stakeholders as well as visiting some foreign countries involved in large-scale mining, in 2008 the committee floated recommendations for a new mining policy that would increase royalties across the board, most of which have been included in a new law.

Its findings confirmed beyond reasonable doubt what a South African investor told me in Johannesburg in 2006: “We are robbing Tanzania very badly…but the good thing is that we didn’t pass the law that gives us an opportunity to rob your country…it was passed by your parliament.”

Though one member of the committee declined to sign the final copy of the report, protesting its contents, the Bomani-led committee revealed how the World Bank, the International Monetary Fund and the Mkapa regime orchestrated the plunder of the country’s rich minerals.

It was the findings of the Bomani committee, as well as the previous report by Lawrence Masha’s team, that enabled the minister for Energy and Minerals, William Ngeleja, and his team to draft a new policy, which was then tabled before the cabinet for approval.

Ngeleja, who was promoted to full minister after the political storm of February 2008 that ousted Premier Lowassa and another two cabinet ministers, was tasked to spearhead the drafting of the new minerals policy which would then enable the introduction of the new Act. He was closely assisted by Dr Peter Kafumu, former commissioner for minerals, who was seen by some large-scale miners as anti-investor because of his stance on the 1998 Act.

Kafumu became Commissioner for Minerals in 2006 soon after the election of President Kikwete, inheriting a department that was highly attacked and blamed for the previous Mining Act of 1998. The minerals policy draft was tabled before the cabinet and endorsed by all the members, opening the way for the drafting of a new Mining Act in early 2009. The proposed Mining Act took into consideration the recommendations by the Bomani committee, the Kipokola commission, Lawrence Masha’s fiscal regime study and comparative studies from countries such as Botswana, Namibia, Ghana, Angola, Canada and Australia.The Minerals Policy of 2009 was formulated as a result of an evaluation conducted during the ten years of implementation of the Minerals Policy of 1997, the Mining Act of 1998 and lessons drawn from its implementation.

Among proposals of the new Mining Act, which was first tabled for the stakeholders’ discussion in Arusha in December, 2009, was to abolish hundred percent ownership of large-scale mining by foreign companies, enabling the government to automatically retain between 10-40 percent free carried share in a large-scale mine.

The new law also proposed drastic changes in royalty calculations by introducing a gross value system instead of the current netback value. Under the new law, royalties in gold would be adjusted to 4 percent of the gross value earning posted by any large-scale mine, up from the previous 3 percent which was being calculated basing on netback value – a situation the government says was denying Tanzanians enough revenues.

For tanzanite, diamonds and uranium, the new royalties’ rate would be 5 percent, up from the previous 3 percent, while other minerals would be taxed at 3 percent. The new Mining Act also proposed that large-scale gemstone mining would be done in a 50/50 joint venture between locals and foreign investors, contrary to the current situation where the winners, mainly foreign firms, take it all.

The Act also allows the government to acquire a maximum of 20 percent shares by investing in selected projects. The new law, which sought to end the ‘winner takes it all’ system, also allows state-owned corporations to acquire up to 15 per cent equity in a corporate parent company abroad for negotiations and promotional purposes.

However, to foreign investors, this was viewed a fresh nationalisation in the making, hence they quickly embarked on an international campaign to ensure that the new Act was not passed without being overhauled in their favour. Using their agents, who are well equipped in public relations and international communication, global news wires such as Bloomberg, Reuters and Dow Jones reported that Tanzania was about to nationalise all mines, by introducing the clause that allows the government to retain free carried shares.

The masters of globalisation also control a section of the international media, which report stories for the interest of the corporate world. These media will always trust any report from WB or IMF about Africa, even if the report says the sun rises from the west!

When their governments kill foreign nationals, these media will call it ‘collateral damage’ or an incident of ‘friendly fire’. But if it’s Robert Mugabe doing it, it’s called murder, genocide or whatever suits the needs of their western masters. That’s why an Uruguayan journalist, Edwardo Galleano, wrote that “when America goes to the war so does the press.”

President Hamid Karzai of Afghanistan rigged the election some few years ago, but since he was the darling of the western masters the story was buried and his opponent told to shut up. However, when Mugabe did the same thing, he was condemned around the globe, with the western masters calling for his head. This is how some sections of the international media operate to suit the needs of their allies.

So, when Bloomberg, Reuters and Dow Jones report a story that Tanzania plans to introduce nationalisation, the image of the country before international investors suffers a lot. Finally, you are left with no option but to follow the orders of the western corporate giants.

In Tanzania the pressure was very high, with some investors threatening to close down business if the law was passed without being amended. President Kikwete was at a crossroads, and his critics cited another law passed by Parliament which wanted mobile phone companies to list at the Dar es Salaam Stock Exchange as a sign of an anti-business regime.

At the local level, the campaign also gained momentum, whereby two cabinet ministers were tasked to ensure that the new law didn’t sail through without being amended. In defending the Act amid growing international pressure, Energy and Minerals minister Ngeleja said, “It’s unfair to allow a hundred percent ownership by foreign companies…the fact that the minerals are in our land gives qualification to the government to have at least 10 percent free carried share.” “It should be noted that Tanzania is not aiming at nationalising any foreign-owned mine, but our intention is to create a level-playing field or a win-win situation,” the minister clarified in his defence after the proposed law drew negative reactions from foreign investors.

Needless to say, the mining companies have been lobbying hard against tax reforms. The Tanzania Chamber of Minerals and Energy (TCME), an industry body, warned in June 2009: "The timing and manner in which these regressive measures have been instituted is too costly to be borne by any industry or sector," according to an article by Ratio magazine published in 2009.

In response to ‘A Golden Opportunity’, a report released by activists in 2008 that demanded higher tax contribution from mining companies in Tanzania, Barrick made some caustic comments: "The authors' proposed changes in law to make the Tanzanian investment climate vastly less attractive for new investment could not possibly be any more insensitive to global economic reality. Such changes would only aggravate an already desperate economic picture for new investment in the sector and cast an even larger cloud over the long-term future of the gold mining industry in Tanzania."

Mining companies asked parliament in 2009 to consider postponing the reforms until the effects of the global crisis subsided, to which the MPs responded by saying that it would be "politically irresponsible" to do. All these were efforts aimed at blocking the 2010 Act pending major overhaul of some of the ‘unfriendly’ clauses to investors.

But, as the government struggled to defend its position, former President Benjamin Mkapa, whose regime is accused of introducing the bad Mining Act of 1998, was defending his actions, saying the so-called bad law was intended to benefit both the investors and the country.

To put things into perspective, Mkapa was seen as a pro-business leader while Kikwete was viewed as anti-investors during the process to introduce the Mining Act of 2010, which replaced the 1998 law. Just the fact that a poor country like Tanzania, had the audacity to introduce a law that went against the western corporate firms, financed and insured by the World Bank, was an insult to the big brothers.

To prove that there were more powerful forces at work, a cabinet minister strongly opposed the law in writing, calling it unfair to the international business community. When I read what the minister wrote, I was stunned because he was part of the cabinet that approved the 2009 minerals policy that finally paved the way for the introduction of the 2010 Mining Act.

Whether or not he was paid we shall never know for sure. Another cabinet minister denounced the proposed law two days before the Act was to be tabled in parliament under a certificate of urgency. Whether he was also paid to act the way he did is subject to debate, but his move was a clear indication of how external forces were at work to block major reforms in the mining sector.

Even after the Act was passed, the move to block the law continued, with this time key players in the industry lobbying to ensure that the president didn’t assent to it to make it law. However, finally, the 2010 Act was assented by the president, making it an official law, and since then none of the foreign investors has closed down business.

My view is that President Kikwete might have erred in some areas, but one thing he did against all external pressure was to ensure reforms in the mining sector sailed through, which finally gave Tanzania a new good law which replaced the 1998 Act. Of course, having a good law is one thing. A bigger challenge is to have strong institutions to supervise the enforcement of that law.

Clarification: In our last week’s series, Mining Analysis-3, we used the file picture of a senior USAID Director Pamela White, distributing condoms to small scale Tanzanite miners in Mererani some few years ago. The picture was intended to show the small scale miners who are key stakeholders in the main article and therefore wasn’t by anyway intended to undermine the image of anybody.